NEW YORK (Reuters) – U.S. index provider MSCI Inc on Tuesday declined to add domestic Chinese stocks to one of its key benchmarks, concluding that Beijing had more work to do in liberalizing capital markets and delivering a blow to Chinese policymakers hoping to broaden the appeal of their currency.

This is the third year running that MSCI has given so-called Chinese A-shares the thumbs-down, after first floating the idea of adding them to its Emerging Markets Index in 2013. Inclusion could eventually prompt asset managers, pension funds and insurers to pour up to $400 billion of funds into mainland China’s equity markets over the next decade, according to analysts.

MSCI said that Chinese authorities had made significant improvements in the accessibility of the market for global investors and were moving in the right direction. MSCI added that it would consider the China A shares’ inclusion as part of its 2017 review and had not ruled out a potential off-cycle announcement should further positive developments occur ahead of June 2017.

MSCI said it put off adding the Chinese shares in order to take more time to assess the effectiveness of the Qualified Foreign Institutional Investor quota allocation and capital mobility policy changes as well as the effectiveness of the new trading suspension policies, adding that the repatriation limit remained a “significant hurdle.”

In a statement published on its website, MSCI said it will not add Chinese A shares, which are listed in Shanghai and Shenzhen and denominated in yuan, to its key index, tracked by $1.5 trillion of managed assets, just yet.

“International institutional investors clearly indicated that they would like to see further improvements in the accessibility of the China A shares market before its inclusion in the MSCI Emerging Markets Index,” Remy Briand, MSCI managing director and global head of research, said in a statement.

Expectations that MSCI would include A shares reached an all-time high this year, after Chinese authorities relaxed the country’s $81 billion QFII scheme, a quota-based foreign investor program, and clarified foreign ownership rights.

The Chinese government has said it expects to add Shenzhen-listed shares to a Hong Kong-Shanghai Connect trading link later this year, which is expected to open up the market dramatically.

But investors believe it would be too risky for MSCI to add A shares before the scheme was up and running.

Vanguard Group last year added A shares to its broad emerging markets exchange-traded fund, Vanguard FTSE Emerging Markets ETF, which tracks a different index.

Lucy Qiu, an emerging market strategist at UBS Wealth Management, said Chinese securities authorities will be reluctant to allow foreign funds to redeem quickly if markets perform as poorly as in January when the country allowed its yuan currency to depreciate.

“That has to be an ongoing negotiation between MSCI and the Chinese authorities,” Qiu said. “If there’s another January 2016 coming then it’s understandable they might not want to release that limit.”

But she said a move by Chinese regulators to address MSCI’s three recommendations could lead to a quick decision by the index provider to add some exposure to China’s domestic stock market.

“If these three points are addressed I would see an inclusion being possible later this year, early next year,” she said.

MSCI also announced Peru would remain in its Emerging Markets index, provided it maintains three constituents. Pakistan was reclassified to emerging market status, coinciding with the May 2017 semi-annual review. Argentina, which returned to capital markets this year after 15 years, will be considered for reclassification as an emerging market in the index’s 2017 review.

Nigeria will be removed from the MSCI frontier markets index and reclassified as a stand-alone market, the group announced, and South Korea will not be included on the list for reclassification to developed market status.

(Reporting by Dion Rabouin and Trevor Hunnicutt in New York and Michelle Price in Hong Kong; Editing by Dan Burns and Matthew Lewis)

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